Greater efficiencies, synergies for Fiat-GM

The alliance between Fiat and General Motors will create greater efficiencies in Europe than previously thought.

Powertrain and purchasing in Europe and South America are the two key areas the partners have focused on since they agreed to form the alliance in March.

Now they say bigger savings will be achieved through merging purchasing operations than initially expected.

Assets and employees from each company will be transferred to the 50-50 joint ventures by year end, the partners said.

The powertrain joint venture will be based in Turin, headquarters of Fiat Auto.

It will be headed Nunzio Pulvirenti, currently general manager of powertrain at Fiat. Daniel Hancock, president of GM's Allison Transmission division, will become CEO.

Around 13,000 GM powertrain employees now working in Europe and South America will become part of the Turin-based operation. They include workers for GM's German subsidiary Adam Opel, Vauxhall in the UK and Saab, the Swedish luxury-car unit.

Fiat will contribute 14,000 of its employees to the new company as well as powerplant facilities worldwide.

The partners said the new company will be one of the world's largest makers of engines and transmissions, producing an estimated 5 million units a year. The powertrain joint venture is expected to have annual revenues of $10 billion.

The joint venture will focus on four-cylinder gasoline and diesel engines for use in vehicles sold in Europe and Latin America, Robert Hendry, chairman of Opel, said in an interview earlier this month.

The major strength of Opel, which develops GM engines for both continents, is its small-displacement gasoline engines and the new six-cylinder L850 developed jointly with GM in the USA, Hendry said.

Fiat leads in the development of new low-emission, fuel-efficient diesel engines, said Hendry. These engines use second-generation common-rail direct-injection systems, he said.

'Having access to this common-rail technology is important to us,' said Hendry.

Fiat will benefit from GM's research on fuel cells and is expected to use running gear from one of GM's three Japanese partners - Isuzu, Subaru or Suzuki - for a new sport-utility due in 2002.

GM will head the purchasing joint venture, which will be based at Opel headquarters in Russelsheim, Germany.

Its chairman will be Robert Socia, GM Europe's vice president for supply and an Opel board member. The head of Fiat purchasing, Tommaso Le Pera, will become CEO.

The joint venture will take over the $32 billion purchasing operations of the two partners and take 1,400 employees from GM and 800 from Fiat.

With its massive global purchasing power, GM is clearly the leader in the supply area. But combining GM Europe's $16 billion purchasing operation with Fiat's similarly sized operation will give both makers a significant advantage in economies of scale, Hendry said.

'We didn't think initially there would be much benefit in the purchasing end for us and that Fiat is going to get it all,' he said. 'But there's a lot. Both are going to benefit.'

GM and Fiat also signed an agreement to cooperate in the area of financial credit and said they will study combining operations of the credit arms GMAC and Fidis in the areas of information technology, back-office activities and wholesale management.